The coronavirus crisis is expected to have an unprecedented economic impact for the Eurozone, parts of which are still recovering from the global financial crisis of 2008 and the subsequent eurozone crisis. With senior EU policymakers’ priorities having shifted this past month to the public health crisis and working on mitigating its economic impact, we can see that this will have an effect on the micro-level too. We are already witnessing an impact on the EU’s priorities and ambitious timetable of the 2019-2024 cycle, where we have seen delays and extensions for legislative files and consultations. We have therefore outlined below how COVID-19 has had an impact from a political perspective and how the EU is adapting to these extraordinary times.
European policymaking: Before and since COVID-19
The rapidly evolving public health crisis has had an impact on this Commission’s priorities from before Covid– focused on digitalization, moving to a green economy and resilience. Legislative items that featured highly on the Brussels policy agenda before Covid were issues such as the Green Deal or the Digital Package. The EU’s sudden shift to the public health crisis at hand and its effects have therefore had an impact in terms of delivering on those legislative priorities and the timetable that was agreed on at the beginning of the term.
We can expect that policymakers will continue to push through some parts of the legislative agenda, notably the Industrial Strategy or the Circular Economy Directive (as part of the Green Deal) that came through before the pandemic hit Europe. Other areas, notably in the digital space – such as the development of Artificial Intelligence (AI) in the EU and on access to data (i.e. health data) – decisions will be maintained to a certain extent and perhaps some will speed up. This is because for the European Commission, “the Green transition and the Digital transformation will play a central and priority role in relaunching and modernizing our economy”.
Other legislative activity has been marked by certain delays and consultations being extended. This is understandable taking into consideration that EU institutional staff, including parliamentarians, officials and third parties operating in Brussels are working remotely. With all but essential face to face meetings on hold, any engagement in Brussels is now happening through technology.
A refocus of Europe's priorities
The COVID-19 outbreak has forced EU leaders to switch into crisis management mode, prioritising the economic recovery of the continent. EU leaders already reached a deal on a €540 billion package to support member states, companies and workers affected by the coronavirus crisis. Brussels is now looking to complete the final piece of the European economic recovery puzzle with a coordinated exit strategy tied to the European Commission’s recovery plan. The Commission is speaking about a fund of at least €1tn, but which has already been met with some scepticism, with worries that the fund is focusing on delivering via loans, rather than grants, burdening already highly indebted countries. What countries need now more than anything else is cash transfers, and loans won’t suffice. This recovery strategy is expected to result in an updated Multiannual Financial Framework (MFF) for the period 2021-2027.
In the meantime, much of the debate in Europe is also focused on issuing “corona bonds”, but that has proven to be quite controversial (although it shouldn’t be, according to French Economist Thomas Piketty). The debate has put pressure on Member States, some of which are not comfortable with adding more money on the table because of worries about their own national finances.
Impact of COVID-19 on the banking sector
The corona crisis has significant effects on many banks in the Banking Union, which are expecting loan losses as a result of the economic contraction. This week, Commission Executive Vice-President Valdis Dombrovskis presented proposals for a temporary reduction of capital requirements for banks during the crisis. These plans will now require approval from the Member States and the European Parliament, which include delaying the full implementation of accounting standards as well as delaying the introduction of additional capital rules for large banks from 2022 to 2023. Andrea Enria, Chair of the ECB Supervisory Board is nonetheless being cautious about suggesting “relaxing” of the rules, but rather that supervisors are using the rules created after the 2008 crisis to smoothen the impact.
Conversations in the EU are not turning around bank bailouts, in the way it was during the 2008 financial crisis. We have seen some financial experts explain that banking resolution is ill-suited to be deployed during this phase of the crisis. Although we may see banking resolutions emerge at a later stage, applying particularly to vulnerable banks. In contrast to the financial crisis of over a decade ago, EU policymakers are hoping that banks can be part of the solution. Governments may, therefore, want to use banks as a “channel” to support business and the economy, said Executive Vice President of the European Commission Margrethe Vestager. This crisis may, therefore, be the opportunity for banks to rehabilitate themselves and regain trust as the funnels of stimulus programmes that may prevent an economic collapse.
A changed European timeline
The European Commission college of commissioners will adopt a new working programme in the next week(s) (the date is to be confirmed), which will reflect the current situation and re-assess priorities. This new programme is expected to be part of the longer-term strategic approach focused on the EU’s recovery strategy.
The upcoming German Presidency will focus on a “radical reprioritisation and reduction” of work. The presidency will be focused on the exit strategy post-COVID19 crisis and on rebuilding the European economy. Two of the priorities previously set out will remain high on the presidency’s agenda: competition law and industrial policy, as they will be crucial to restart the economy.
The European Parliament has tried to maintain some activity since the crisis started through mini sessions, holding e-votes and organising committee meetings via video calls. However, many MEPs are struggling with this system of e-voting and online meetings, leaving them unable to properly discuss the legislation and amend laws.
The EU is now planning a coordinated exit strategy, including gradual steps to lift the containment measures in the EU. We have already seen some Member States enacting preliminary measures for lifting their respective lockdowns. In Brussels for instance, we can expect a progressive lifting of measures as of 3rd May.
Our team’s advice on next steps
There are important guidance points to help communications and leadership teams think about how to craft and adapt their plans:
- Be transparent, not only of taking funds in the first place, but proactively updating stakeholders with information on the amounts, purpose and plans to pay back that money, if necessary.
- Offer clear internal communication to employees about the disbursement of funds and how to access assistance. In some cases, companies should also communicate to employees how to access government assistance for individuals in case they are eligible.
- Keep your house in order, as fallout from managerial mistakes in the implementation/efficiency of funds could harm reputation long-term.
- Be visible about collaboration with national and local governments as well as other business leaders.
- Share best practices for others to use and build upon.